NTIA Ex Parte Comments on unbundled network elements (UNEs)in the FCC's proceedings on Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and on Interconnection

Docket Number: 
CC Docket No. 96-98, CC Docket No. 95-185
Date: 
August 03, 1999

 

Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

 

In the Matter of                                   )
                                                           )
Implementation of the Local )               CC Docket No. 96-98
Competition Provisions in the              )
Telecommunications Act of 1996        )
                                                          )
Interconnection between Local           )
Exchange Carriers and Commercial    ) CC Docket No. 95-185
Mobile Radio Service Providers         )
 

 

EX PARTE COMMENTS OF THE
NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

TABLE OF CONTENTS

 

Section

Executive Summary

I. INTRODUCTION AND SUMMARY OF POSITION

II. IN ENACTING SECTION 251(C)(3), CONGRESS INTENDED TO GIVE
CLECS BROAD ACCESS TO UNBUNDLED NETWORK ELEMENTS.

III. SECTION 251(D)(2) DOES NOT REDUCE SUBSTANTIALLY THE UNBUNDLING REQUIREMENTS MANDATED BY SECTION 251(C)(3).

A. Applicability of Section 251(d)(2)
B. The Supreme Court's Decision Does Not Limit Significantly the
Commission's Discretion in Construing the "Necessary" and "Impair" Tests.
C. "Necessary" and "Impair"
1. "Necessary"
2. "Impair"

IV. THE COMMISSION SHOULD SPECIFY A MINIMUM LIST OF UNBUNDLED ELEMENTS AND CREATE A "BEST PRACTICES" APPROACH THAT WILL PERMIT APPROPRIATE ADDITIONS TO THAT LIST OVER TIME WITHOUT THE NEED FOR COMMISSION ACTION

A. Specification of the National UNE List
B. A "Best Practices" Model for Additions to the National UNE List

V. THE COMMISSION SHOULD ESTABLISH PROCEDURES AND STANDARDS FOR REMOVING UNBUNDLING OBLIGATIONS WHEN THEY BECOME UNNECESSARY.

VI. CONCLUSION

ENDNOTES


EXECUTIVE SUMMARY

The market-opening provisions of the Telecommunications Act of 1996 (1996 Act) are stimulating the growth of local exchange competition. More than 140 companies are now providing local service in the 100 largest urban markets, as well as many smaller areas. Competitive local exchange carriers (CLECs) have attracted more than $30 billion in capital and currently serve between 2 and 3 percent of all local access lines. Although competitors provide service predominantly via facilities acquired from incumbent local exchange carriers (ILECs), CLECs are also aggressively deploying their own switching and transmission equipment. One investment firm has identified the reasons for this proliferation of competition -- "the combination of access to low cost capital coupled with a clear regulatory and public policy initiative toward opening up local markets." The fundamental question at issue in this proceeding is whether the Commission should alter the course it set in 1996 and change substantially the ILECs' unbundling obligations under section 251(c)(3) of the Communications Act. NTIA believes that it should not.
 

The Administration has consistently favored competition as the most effective mechanism for promoting investment in our nation's information infrastructure. Competition will also benefit consumers by reducing prices, increasing the range of available services, and speeding deployment of advanced telecom networks and services. We see these forces at work today in communities throughout the country.
 

The 1996 Act reflects that same procompetitive philosophy. Of particular relevance for this proceeding, the Act seeks to foster local exchange competition by creating entry opportunities for new service providers. It does so by, among other things, imposing extensive unbundling obligations on ILECs. For the most part, the unbundling rules adopted by the Commission in its August 1996 Local Competition Order properly implement the framework that Congress established and further the Act's procompetitive ends. Although the Supreme Court's decision in AT&T v. Iowa Utilities Board mandates changes in those rules, NTIA does not believe it requires a fundamental change in the course that the Commission has already charted.
 

NTIA therefore recommends that the Commission reinstate in most respects its 1996 unbundling regime. Specifically, the Commission should reaffirm its list of seven network elements that ILECs must provide to competitors, upon request, on a nationwide basis: (1) local loops; (2) network interface devices; (3) local switching; (4) interoffice transmission facilities; (5) signalling networks and call-related databases; (6) operations support systems; and (7) operator services and directory services. The text and legislative history of the 1996 Act indicate that Congress concluded that ILEC provisioning of those elements was necessary, at a minimum, to open up the ILECs' local exchange networks to competitive entry. NTIA also supports the Commission's tentative decision to continue allowing State commissions to require ILECs to furnish other network elements to competitors on an unbundled basis if the State commissions conclude that such requirements would be consistent with the provisions of the 1996 Act, as construed by the Commission in this proceeding.
 

Although the 1996 Act imposes extensive unbundling obligations on ILECs, NTIA nevertheless agrees that those requirements must be limited in scope and in duration. Such limits will not substantially reduce entry opportunities for new providers and should increase the likelihood of facilities-based competition, which in the long run will provide consumer benefits, increase firms' incentives to innovate, and create opportunities for deregulation. Thus, we favor a construction of the "necessary" and "impair" standards in section 251(d)(2) that would not entitle a competitor to obtain from an ILEC any network element merely on a showing that the element would be useful to the competitor in providing service. Instead, the competitor would have to show, or the relevant government agency would have to conclude, that a failure to obtain the requested element would appreciably and adversely affect the competitor's ability to offer service, taking into account the element's availability elsewhere in the market. Under this standard, the Commission could reasonably determine, for example, that ILECs need not provide access to readily available digital subscriber line access multiplexers (DSLAMs) on an unbundled basis if competitors have reasonable and timely access to ILEC subscriber loops and collocation space.
 

Finally, NTIA concludes that in market areas and market segments where the growth of competition has rendered enforcement of unbundling requirements unnecessary and, potentially, counterproductive, the Commission has the authority to forbear from applying the Act's unbundling provisions. We suggest that, in the first instance, the Commission exercise that forbearance authority by continuing the ILECs' unbundling obligations, but affording ILECs greater flexibility in pricing particular UNEs in markets where competitive alternatives are readily available. NTIA recommends that the Commission specify standards to be used in determining whether forbearance would be appropriate in particular instances and discusses several factors that could be considered.


Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

 

In the Matter of                                   )
                                                           )
Implementation of the Local )               CC Docket No. 96-98
Competition Provisions in the              )
Telecommunications Act of 1996        )
                                                          )
Interconnection between Local           )
Exchange Carriers and Commercial    ) CC Docket No. 95-185
Mobile Radio Service Providers         )

Larry Irving
Assistant Secretary for                                    Kathy Smith
 Communications & Information                     Acting Chief Counsel

Kelly Levy
Acting Associate Administrator                       Milton Brown
Alfred Lee                                                      Attorney
Tim Sloan
Office of Policy Analysis
and Development

National Telecommunications
and Information Administration
U.S. Department of Commerce
Room 4713
14th Street and Constitution Ave., N.W.
Washington, D.C. 20230
(202) 482-1816

August 2, 1999

EX PARTE COMMENTS OF THE
NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

The National Telecommunications and Information Administration (NTIA), an Executive Branch agency within the Department of Commerce, is the President's principal advisor on domestic and international telecommunications and information policy. NTIA respectfully comments on the Commission's Second Further Notice of Proposed Rulemaking (Notice) in the above-captioned proceeding.(1)

I. INTRODUCTION AND SUMMARY OF POSITION

In February 1996, Congress enacted and the President signed into law landmark telecommunications reform legislation.(2) The fundamental objective of the Telecommunications Act of 1996 is "to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition."(3) Although Congress expressed its market-opening aims in general terms, it recognized that "[c]entral to opening up telecommunications to competition" was the establishment and expansion of competition in one particular area -- the local exchange markets controlled by incumbent local exchange carriers (ILECs).(4) Accordingly, while Congress imposed general duties and obligations for all telecommunications carriers, it subjected ILECs, and only ILECs, to additional and extensive interconnection, unbundling, and resale requirements.(5)

In August 1996, the Commission promulgated regulations implementing those portions of the 1996 Act designed to foster local exchange competition -- including sections 251 and 252.(6) Of particular relevance here, the Commission adopted a core set of national standards and procedures to promote consistent action by the private parties and State agencies charged with converting the Act's requirements into particular agreements between ILECs and CLECs.(7) In so doing, the Commission generally construed the ILECs' interconnection, unbundling, and resale obligations under section 251(c) broadly -- i.e., to give competitive local exchange carriers (CLECs) more access to the ILECs' local networks, rather than less -- consistent with its understanding of the pro-competitive objectives of the 1996 Act.

Last January, the Supreme Court rejected most of the challenges to the Commission's regulations.(8) Most importantly, the Court concluded that the Commission had broad authority to issue national regulations implementing sections 251 and 252 of the 1996 Act.(9) At the same time, however, the Court overturned section 51.319 of the Commission's rules (Rule 319),(10) which specifies the network elements that ILECs must make available on an unbundled basis to CLECs pursuant to section 251(c)(3) of the Act.(11) The Court determined that the Commission's selection of the unbundled network elements (UNEs) enumerated in Rule 319 rested on an unreasonable construction of the "necessary" and "impair" standards set out in section 251(d)(2) of the Act.(12) Specifically, the Court held that, in applying those standards, the Commission erred (1) by not considering the "availability of elements outside the [ILEC's] network" and (2) by assuming "that any increase in cost (or decrease in quality) imposed by [an ILEC's] denial of a particular network element . . . causes the failure to provide that element to 'impair' the [CLEC's] ability to furnish its desired services." (13) The Court therefore remanded the unbundling issue to the Commission for further proceedings consistent with the Court's opinion.

ILECs take the minor cracks in the Commission's unbundling regime opened by the Court's opinion as an opportunity to raze the building.(14) They insist that the Commission must construe the open-ended unbundling language of the Act in accordance with their own notions of antitrust law and principles of economic efficiency.(15) The virtue of that approach for the ILECs is that, if their particular version of antitrust and efficiency were adopted, it would dramatically reduce their unbundling obligations under the 1996 Act and, not incidentally, perpetuate their dominant positions in local exchange markets.

The Commission's task in the present rulemaking, however, is to fashion an unbundling regime that incorporates the Court's limited holdings but, more importantly, effectuates the framework that Congress established and furthers the fundamental objective of the 1996 Act -- to foster competition in all telecommunications markets by creating entry opportunities for new service providers.(16) NTIA believes, moreover, that it is important for the Commission's unbundling rules to promote efficient facilities-based competition. To be sure, the 1996 Act affords competitors three distinct entry options -- construction of their own facilities, resale of ILEC services, and purchase of ILEC UNEs -- and does not express a preference for a particular mode of entry.(17) Facilities-based entry, however, produces benefits that the other two entry strategies do not or produce only to a lesser degree. As the Commission has pointed out, construction of new local exchange networks "will not only lead to innovation by the new competitors, but should also spur [ILECs] to upgrade their systems and offer a broader array of desired service options to meet consumers' demands."(18)

Furthermore, although entry via UNEs or resale can increase local competition, both paths require substantial regulatory oversight to ensure that the rates ILECs charge for such arrangements are reasonable.(19) "Pure" facilities-based entry also increases competition, but does not entail the same government scrutiny of the ILECs' practices, because the new entrant is less dependent on ILEC facilities and services. Furthermore, substantial facilities-based competition can exert a disciplining effect on ILEC rates for resale and UNEs that could reduce, over time, the need for regulators to monitor ILEC rates for the latter offerings. In this way, unbundling rules that foster efficient facilities-based local entry (i.e., entry based on an accurate assessment of the relative costs of different entry strategies) would serve the proconsumer, procompetitive, and deregulatory objectives of the 1996 Act.

NTIA believes that the Commission can adhere to the Supreme Court's mandate, faithfully implement the unbundling framework that Congress created, and encourage efficient facilities-based entry without making substantial changes to its existing unbundling rules. Accordingly, NTIA respectfully recommends the following actions:

1. Scope of the ILEC's Unbundling Obligations

• The Commission should hold that the "necessary" criterion in section 251(d)(2) applies only to "proprietary" network elements, and that the "impair" standards applies to both proprietary and "nonproprietary" elements.

• The Commission should consider a proprietary element to be "necessary" if that element (and the capabilities it provides) is a prerequisite to the provision of a telecommunications service. In other words, is the desired service possible without the capabilities and functionalities that the requested element affords?

• To ensure that unbundling requirements do not unduly reduce an ILEC's incentives to innovate, a CLEC's inability to obtain a proprietary network element from an ILEC should be deemed to "impair" that CLEC if the carrier's self-provisioning of that element, or its securement from another source, imposes a "significant" penalty on the CLEC in terms of cost, service quality, time to market, etc. With respect to nonproprietary elements, on the other hand, an impairment should exist if the requesting CLEC suffers a nontrivial increase in cost or delay in providing service as a result of its inability to secure a desired UNE from the ILEC.

• The Commission should apply the statutory standards and specify a list of UNEs, to be applicable uniformly throughout the country.(20) NTIA believes that a reasonable set of national UNEs should include, at a minimum, the seven elements set forth in Rule 319: (1) local loops; (2) network interface devices; (3) local switching; (4) interoffice transmission facilities; (5) signalling networks and call-related databases; (6) operations support systems; and (7) operator services and directory services.

• The Commission should allow State commissions to require that ILECs make available UNEs not specified in the Federal list if CLECs requesting those UNEs can demonstrate that their provision satisfies the relevant statutory standards.

• If, however, (1) an ILEC agrees to provide a requested UNE, or (2) a State commission orders an ILEC to provide a particular UNE, the Commission should create a rebuttable presumption that ILECs in any other part of the country must provide that same UNE to requesting carriers. The burden would then be on the ILEC to show that provision of that UNE to a requesting CLEC would be inconsistent with the terms of the Act and the Commission's implementing regulations.

2. Relaxation of Unbundling Obligations: Although Congress imposed broad-ranging unbundling obligations on ILECs, it did not require that those requirements be perpetual or immutable. As those obligations (and the other market-opening provisions of the 1996 Act) succeed in stimulating more and more competition, the point may come when the costs of those requirements outweigh the incremental benefits. The Commission may not, however, "sunset" the provisions of section 251 upon the mere passage of time because it lacks the authority to do so. It may, on the other hand, forbear from applying them in accordance with the provisions of section 10 of the 1996 Act.(21) As discussed below, NTIA recommends that, in the first instance, the Commission consider relaxing the unbundling requirements not by eliminating the obligation to furnish particular UNEs whose provision would otherwise satisfy the statutory requirements, but by giving ILECs greater flexibility in pricing those UNEs. We also describe below some of the factors that the Commission should address in deciding whether forbearance would be appropriate in particular instances.

The market-opening provisions of the 1996 Act are stimulating the growth of local exchange competition. More than 140 companies are now providing local service in the 100 largest urban markets, as well as many smaller areas.(22) CLECs have attracted more than $30 billion in capital and currently serve between 2 and 3 percent of all local access lines.(23) Although competitors provide service predominantly via facilities acquired from the ILECs, CLECs are also aggressively deploying their own switching and transmission equipment.(24) ILECs and CLECs have widely divergent views as to effects of these developments on the market dominance historically enjoyed by the ILECs. That debate, however, is of less import to the present proceeding than are the reasons for the progress made to date -- "the combination of access to low cost capital coupled with a clear regulatory and public policy initiative toward opening up local markets."(25) The fundamental question at issue here is whether the Commission should alter the course established in 1996 and change substantially the ILECs' unbundling obligations under section 251(c)(3). NTIA believes that it should not. Such changes are not required by the Supreme Court's decision and would not further the goals and objectives of the 1996 Act.

II. IN ENACTING SECTION 251(C)(3), CONGRESS INTENDED TO GIVE
CLECS BROAD ACCESS TO UNBUNDLED NETWORK ELEMENTS.

The Commission's task in this proceeding is to revise its rules implementing the unbundling provisions of the 1996 Act, taking into account the Supreme Court's limited comments as to the meaning of those provisions. To do so, the Commission must not only hew to the Court's holding but also gain a clear understanding of the unbundling rights and responsibilities that Congress meant to create when it enacted sections 251(c)(3) and (d)(2).(26)

One important question is the possible relationship between the statutory unbundling requirements and the so-called "essential facilities" doctrine. Although the Court specifically declined to decide whether section 251(d)(2) codifies "something akin" to that antitrust concept,(27) Justice Breyer, concurring in the Court's judgment, opined that the statute "does impose related limits upon the FCC's power to compel unbundling."(28) The Commission has therefore solicited comment "on the significance of the essential facilities standard under section 251(d)(2)."(29)

NTIA submits that, if anything is clear from the text of the Act's unbundling requirements, it is that they do not codify the essential facilities doctrine.(30) The language of the statute makes no mention of it and congressional reports and debates concerning the bills that became the 1996 Act are devoid of any reference to it. More importantly, the requirements for making an essential facilities case differ in material respects from the unbundling standards set forth in section 251(c)(3) and (d)(2) of the 1996 Act.

The "essential facilities" doctrine holds that "a firm which controls a facility essential to its competitors may be guilty of monopolization [under section 2 of the Sherman Act] if it refuses to allow them access to the facility.(31) To invoke the doctrine, four elements must be proven:

(1) control by the monopolist of the essential facility; (2) the inability of the competitor seeking access to practically or reasonably duplicate the facility; (3) the denial of the facility to the competitor; and (4) the feasibility of the competitor to provide the facility.(32)


Courts have occasionally ruled that a facility will be deemed essential "only if control of the facility carries with it the power to eliminate competition in the downstream market."(33) Most courts have held that, at a minimum, a plaintiff must show that the defendant's refusal to grant access to its facility has inflicted a "severe handicap on potential market entrants."(34) Furthermore, that refusal must be unreasonable, with reasonableness being determined from the perspective of the defendant monopolist.(35) Finally, the case law indicates that denial of access to an essential facility may not be actionable if the monopolist has legitimate business reasons for its actions.(36)

The 1996 Act plainly imposes on ILECs a broader duty to deal with CLECs than does the essential facilities doctrine. Even adopting the construction of section 251(d)(2) that is most favorable to the ILECs -- i.e., that the "impairment" standard applies to all CLEC requests for UNEs -- the common definition of "impair" does not even approximate the "severe handicap" that a CLEC must suffer in order to make an essential facilities claim.(37) Further, the prices for UNEs must accord with a cost standard established by Congress, further defined by the Commission, and applied by State commissions.(38) And, if application of section 251(d)(2) confirms that a CLEC is entitled to a particular UNE, the statute gives the ILEC only one excuse for not furnishing it -- i.e., only if provision of that UNE at the point requested by the CLEC is not technically feasible.(39)

Section 251 gives CLECs broader access to ILEC networks than would be available under an essential facilities analysis because that section was intended to serve a much broader purpose. The central purpose of the antitrust doctrine is to prevent the expansion of monopoly power from one market to another.(40) As AT&T points out, if the underlying monopoly was lawfully obtained, the antitrust laws generally will not disturb it, but will only seek to prevent its misuse.(41) Section 251, on the other hand, is designed to strike at the heart of the monopoly itself. Congress was faced with a government-sanctioned local exchange monopoly and determined that that monopoly must be opened to competition.(42) Because Congress sought to eliminate the monopoly, rather than simply to prevent its expansion, the tools that it employed were necessarily more extensive than would be appropriate for a court to use in remedying a violation of the essential facilities doctrine.

Indeed, to the extent that Congress considered the essential facilities doctrine at all, it concluded that (1) the ILECs' networks are essential facilities and (2) that alternative providers must have broad access to those facilities if there was to be local competition:

In the overwhelming majority of markets today, because of their government-sanctioned-monopoly status, [ILECs] maintain bottleneck control over the essential facilities needed for the provision of local telephone service. The bottleneck consists of the elements needed to originate or terminate a telephone call -- the equipment with capabilities of routing and signalling calls, network capacity and network standards. The inability of other service providers to gain access to the [ILECs'] equipment inhibits competition that could otherwise develop in the local exchange market.(43)

There is no indication, moreover, that Congress meant for network elements to be unbundled only when such unbundling comports with an ILEC's view of economic reasonableness.(44) The Senate expected that questions about the reasonableness of a competitor's unbundling request would be resolved not during the Commission's specification of the ILECs' unbundling requirements under section 251(d)(2), but during the interconnection negotiations between ILECs and competitors.(45) The House of Representatives was even more explicit on this point:

[ILECs] have the duty to offer unbundled services, elements, features, functions, and capabilities whenever technically feasible. During the Committee's consideration of the bill, the Committee deleted a requirement that unbundling be done on an "economically reasonable" basis out of concern that this requirement could result in certain unbundled services, elements, features, functions, and capabilities not being made available. The Committee clarified, however, . . . that the beneficiary of unbundling must pay its cost.(46)

Congress was aware that the section 251(c) unbundling, interconnection, and resale requirements would exact substantial costs and burdens on the carriers subject to them.(47) It nevertheless decided that, on balance, the competitive benefits that such obligations might produce were worth the costs that they would entail. To be sure, Congress did conclude that, in some circumstances, the costs could outweigh the benefits. Again, however, its chosen response was not to weaken the requirements themselves, but (1) to limit the range of carriers subject to them(48) and (2) to require that competitors pay the costs of the elements they request.

III. SECTION 251(D)(2) DOES NOT REDUCE SUBSTANTIALLY THE
UNBUNDLING REQUIREMENTS MANDATED BY SECTION 251(C)(3).

The legislative history of the 1996 Act confirms that, in enacting section 251(c)(3), Congress intended to confer substantial unbundling rights upon CLECs. That conclusion is supported by the statutory text, which imposes only four limits on a CLEC's demand for parts of an ILEC's network:

(1) The CLEC must request a "network element";

(2) The element must be used to provide a "telecommunications service";

(3) Unbundling may only occur at a technically feasible point; and

(4) The CLEC must pay a reasonable price for the requested element, as determined in accordance with section 252.(49)

The Supreme Court held, however, that the "necessary" and "impair" language of section 251(d)(2) fixes an additional limitation on the availability of UNEs. It instructed the Commission, on remand, to give some substance to those limiting standards, "taking into account the objectives of the Act."(50)

A. Applicability of Section 251(d)(2)

Section 251(d)(2) specifies that:

In determining what network elements should be made available for purposes of subsection [251](c)(3), the Commission shall consider, at a minimum, whether --
(A) access to such network elements as are proprietary in nature is necessary; and

(B) the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.(51)

NTIA agrees with Sprint that one reasonable construction of the statutory language is that the "necessary" and "impair" standards were meant to apply only to proprietary network elements.(52) We nonetheless recognize that the Commission adopted (and the reviewing courts implicitly accepted) a different construction of the statute in the Local Competition Report, and that there are legitimate reasons why the Commission would be reluctant to reject that construction now.

NTIA submit, however, that there is only one other reasonable construction of section 251(d)(2). Plainly, the "necessary" standard applies only to proprietary elements. The "impair" criterion, on the other hand, would seem to apply to both proprietary and nonproprietary elements. The phrase "such network elements" in section 251(d)(2)(B) has only two possible antecedents -- "such network elements as are proprietary" in section 251(d)(2)(A) or "what network elements should be made available" in the first sentence of section 251(d)(2). If the former phrase is the intended antecedent, then the necessary and impair criteria limit access only to proprietary elements. If the latter antecedent governs, the "impair" standard must apply to all network elements eligible for unbundling under the general requirements of section 251(c)(3). That universe of "all possible UNEs" must necessarily include the subsets of proprietary and nonproprietary UNEs.

B. The Supreme Court's Decision Does Not Limit Significantly the
Commission's Discretion in Construing the "Necessary" and "Impair" Tests.

Regardless of how the Commission resolves the question of the applicability of the "necessary" and "impair" standards, it must comply with the Supreme Court's charge to "giv[e] some substance" to those requirements. Although the Court did not give the Commission much guidance as to the proper construction of "necessary" and "impair," the language it used and the examples it chose to illustrate its criticisms of the Commission's decision on this issue confirm that complying with the Court's mandate does not require a dramatic change in the Commission's reading of the statutory standards.

The majority cited only two specific faults with the Commission's implementation of section 251(d)(2). First, the Commission applied the necessary and impair standards without considering the availability of network elements from non-ILEC sources.(53) The Court did not, however, make "availability from non-ILEC sources" a separate element in the section 251(d)(2) analysis. It merely held that the Commission, in conducting the necessary and impair inquiry, may not "disregard[] entirely the availability of elements outside the [ILEC's] network."(54) The Court's ruling does not mean that an ILEC is absolved of its obligation to unbundle a network element simply because that element is available somewhere else. The Commission must still consider whether, for example, a CLEC's ability to offer service would be impaired if it must secure a desired UNE from an alternative source, rather than from the ILEC.

Second, the Court rejected "the Commission's assumption that any increase in cost (or decrease in quality) imposed by a denial of a network element" constitutes an impairment.(55) The Court's holding in no way suggests that a "substantial" cost penalty is required.(56) That conclusion follows from the numerical example that the Court used to make its point: "An entrant whose anticipated annual profits from the proposed service are reduced from 100% of investment to 99% of investment has perhaps been 'impaired' in its ability to amass earnings, but has not ipso facto been 'impaired . . . in its ability to provide the services it seeks to offer.'"(57) The Court's selection of the smallest possible integer (i.e., 1) out of 100 possibilities(58) to represent an "non-impairing" percentage profit loss begs for the inference that an "impairing" reduction would be much closer to one percent than to 100 percent.

As the Court recognized, moreover, even the smallest increase in costs or reduction in quality may impair a firm's viability in a highly competitive market in which all firms are providing service at marginal cost.(59) Although the local exchange market is not an example of perfect competition at work, for a new entrant it is also not the Court's posited Shangri-La where anticipated profits approach 100 percent of investment. As AT&T points out, a CLEC trying to gain a foothold in the local exchange faces substantial cost disadvantages that will deny it the hope of "handsome" profits, let alone "handsomer" ones.(60) The pressures on CLECs to price at the margin will likely increase over time as new entry occurs and the ILECs respond to that entry. Thus, while the local exchange is not an "ideal world" where any cost differential can be devastating, for newcomer CLECs it is a place where even small disparities in cost, quality, or time to market can "impair" their ability to compete.

In short, the Court's ruling does not significantly limit the Commission's discretion in implementing section 251(d)(2). Carefully read, the controlling opinion reveals that the Court had no fundamental objections to the Commission's interpretation of section 251(d)(2). In the Court's eye, the Commission erred not by trivializing a stringent standard, but by effectively nullifying a relatively lenient one.(61)

C. "Necessary" and "Impair"

In the absence of any statutory definition of the operative words in section 251(d)(2), the Commission should give them their ordinary and common meaning.(62) It should also seek so far as possible to construe those terms in a way that advances the procompetitive goals of the 1996 Act, including the promotion of efficient facilities-based competition.(63) The Commission must also accommodate the fact that the necessary and impair criteria apply to proprietary elements.(64) It should not therefore conflate the two standards by importing notions of "impairment" into the definition of "necessary."(65) That would, in effect, render the impairment standard superfluous.(66)

NTIA believes that the Commission can preserve the distinction between the two words, by bearing in mind the different purpose that each was intended to serve. "Necessary" pertains to the relationship between the element requested (and its associated "features, functionalities, and capabilities") and a service that the CLEC seeks to offer. Recall that section 251(c)(3) permits a CLEC to request UNEs "for the provision of a telecommunications service."(67) Thus, the general language seems to require unbundling whenever there is any plausible connection between UNE and service. In mandating that proprietary elements be "necessary," Congress plainly meant to require a closer nexus between a requested UNE and the proposed service, doubtless to ensure that the unbundling regime did not unduly restrict ILECs' incentives to innovate.(68)

The impairment standard, on the other hand, seems designed to address the economic and competitive effects for a CLEC if it must acquire a particular UNE, or a substitute for it, from a non-LEC (or if the CLEC may only secure a substitute UNE from the ILEC). The impair standard applies to proprietary elements because although Congress did not wish to give CLECs relatively unfettered access to such elements, it recognized that CLECs may need access to proprietary UNEs in some circumstances if competition were to develop.(69) Indeed, if CLECs can obtain proprietary elements only when strictly necessary, ILECs might attempt to create such elements in order to limit their unbundling obligations.(70) For all of these reasons, NTIA believes that the relationship between the necessary and impair standards described above both reflects the statutory text and promotes its underlying purpose.

1. "Necessary"

In ordinary usage, the word "necessary" means essential or indispensable.(71) Thus, NTIA believes that a CLEC should gain access to a proprietary UNE only if that UNE is essential to the provision of a telecommunications service. The relevant question is simply this: Is it possible to provide service without the requested element or a functional substitute for it?(72) If the answer is yes, the ILEC need not provide the proprietary element. If the answer is no, the ILEC must make that element available if the impairment standard is satisfied -- that is, if CLEC's ability to provide service would be hindered by its inability to obtain that element (and its associated features, functions, and capabilities) from the ILEC.

2. "Impair"

The word "impair" generally means "[t]o diminish in strength, value, quantity, or quality."(73) BellSouth contends that "impair" is a "strong word" intended to "create a high threshold" for unbundling.(74) To the contrary, the ordinary meaning of the word "impair" is highly elastic and thus gives the Commission considerable freedom of interpretation, provided that it heeds the Supreme Court's admonition that any diminution cannot be deemed an impairment.

NTIA recommends that, with respect to proprietary elements, the Commission should identify a more stringent definition of impairment -- e.g., by requiring that a CLEC's inability to obtain a proprietary UNE from an ILEC must impose a substantial penalty on the CLEC's ability to offer service, in terms of cost, quality, or time to market.(75) That approach would give CLEC access to "necessary" proprietary elements without unduly reducing the ILECs' incentives to develop and deploy innovative facilities, features, and capabilities.

With respect to nonproprietary elements, it would better advance the goals of the 1996 Act for the Commission to prescribe a relatively low threshold for finding impairment.(76) As noted above, Congress' fundamental objective in enacting that legislation was to promote competition in all telecommunications markets by creating entry opportunities for new service providers.(77) It recognized that new entrants would likely need assistance in their efforts to breach the local exchange monopoly because of the considerable costs of entry.(78) Congress also understood that competitors would likely need help to overcome "any unfair competitive advantages accrued by companies that have benefitted from government-sanctioned monopolies [i.e., the ILECs]."(79) To that end, Congress created "fairly generous," even "promiscuous" unbundling rights for the benefit of prospective local entrants.(80) The Commission should construe the word impair to accomplish that end.

ILECs urge that the Commission must interpret "impair" to require material or substantial differences in cost, quality, or time to market because it is only those disparities that restrict a CLEC's "ability" to provide service, as opposed to simply amassing profits.(81) The Commission should not adopt such a cramped reading of the phrase "ability to provide service." In ordinary usage, "ability" means "the power, mental or physical, to do something, and usually implies doing it well."(82) Like impair, "ability" has many shades of meaning and, thus, the Commission has considerable latitude to select an interpretation that serves the goals of the 1996 Act.

The Commission could reasonably conclude that relatively small differences in costs, quality, or time to market will impair a CLEC's ability to provide service. To the extent that the inability to obtain a UNE from an ILEC increases a CLEC's costs (for example, by forcing it to purchase a more expensive substitute or by denying the CLEC the economies of scale, scope, or density associated with the ILEC UNE), the resulting diminution in profits will reduce the internal funds available to extend and upgrade the CLEC's network and service offerings. It will also hinder the CLEC's ability to attract outside capital for the same purposes. Similarly, decreases in quality and delays in the introduction of CLEC services caused by the unavailability of ILEC UNEs would give the ILEC valuable time to entrench itself with existing customers, to use its unique access to most customers to gain a foothold in new markets and, in markets where services may be offered pursuant to long-term contracts (e.g., DSL and other advanced data services), to "lock up" customers in advance of competitive entry. Over time, all of these disparities will impair a CLEC's ability to offer services that consumers view as alternatives to the ILEC's offerings.(83)

For these reasons, NTIA recommends that the Commission establish a relatively low threshold for determining impairment with respect to nonproprietary elements. Thus, the Commission should conclude that the unavailability of such network elements from an ILEC impairs a CLEC's ability to provide service if the CLEC's self-provisioning of that element, or its securement from another source, imposes a nontrivial penalty in terms of cost, service quality, time to market, etc.(84) The Commission should treat as nontrivial any delay in service provisioning in excess of six months (as compared to the time it would take for a CLEC to begin provisioning a service using ILEC UNEs) and any cost increase in excess of ten percent.

Under this impairment standard, for example, the Commission or a State commission could reasonably conclude that, as long as a CLEC can obtain from an ILEC loop facilities and collocation space on reasonable terms and on a timely basis, its ability to provide a competing DSL service would not be impaired by the CLEC's inability to obtain digital subscriber line access multiplexers (DSLAMs) from the ILEC on an unbundled basis. As NTIA has previously noted, such equipment appears to be readily available to ILECs and competitors alike. In many switching offices, provisioning of DSLAMs does not appear to be characterized by such economies of scale as to prevent a competitor from deploying such equipment over a limited customer base at a cost comparable to that faced by an ILEC.(85) Accordingly, it would not be unreasonable for the Commission to conclude that DSLAMs need not be provided by ILECs as UNEs in market areas where competitors have fair and reasonable access to loops and collocation space.

IV. THE COMMISSION SHOULD SPECIFY A MINIMUM LIST OF
UNBUNDLED ELEMENTS AND CREATE A "BEST PRACTICES"
APPROACH THAT WILL PERMIT APPROPRIATE ADDITIONS
TO THAT LIST OVER TIME WITHOUT
THE NEED FOR COMMISSION ACTION.

NTIA strongly supports the Commission's tentative decision "to identify a minimum set of network elements that must be unbundled on a nationwide basis."(86) The 1996 Act arguably requires as much, given that section 251(d)(2) charges the Commission with "determining what network elements should be made available for purposes of subsection [251](c)(3)."(87) The Commission has also detailed the ways in which the specification of a national UNE list would further the procompetitive purposes of the 1996 Act.(88) Although the Supreme Court disagreed with the way in which the Commission arrived at its initial list of seven UNEs, it did not question the Commission's authority to do so.

A. Specification of the National UNE List

The decisional question concerns what factors or standards that the Commission must consider in fashioning such a national list. The Supreme Court has held, of course, that in so doing the Commission must "giv[e] some substance to the 'necessary' and 'impair' requirements" of section 251(d)(2).(89) However the Commission chooses to define those terms, section 251(d)(2) requires only that the Commission "consider" those criteria in determining what network elements should be made available.(90) The Commission suggests that this "means only that [the agency] must 'reach an express and considered conclusion' about the bearing of a factor, but is not required 'to give any specific weight' to it."(91) More importantly, the statute directs the Commission to consider the necessary and impair standards "at a minimum," plainly indicating that the Commission may regard -- and give weight to -- other factors.

NTIA believes that one additional factor the Commission must consider is the extent to which Congress may have mandated provision of particular network elements on an unbundled basis. The evidence demonstrates that Congress did more than simply specify the standards that the Commission (and, to a lesser extent, State commissions) must use to identify particular UNEs. In several instances, Congress appears to have applied those standards itself and concluded that ILECs ought to provide unbundled access to certain network elements. Thus, the Conference Report states that the "term 'network element' was included [in the 1996 Act] to describe the facilities, such as local loops, equipment, such as switching, and the features, functions, and capabilities that [an ILEC] must provide for certain purposes under other sections of the Act]."(92)

The best evidence of Congress' intent to require the unbundling of particular network elements, in NTIA's view, is the so-called "competitive checklist" in section 271(c)(2)(B). To be sure, ILECs contend that the checklist "applies only to those BOCs that choose to apply for authority to provide in-region interLATA services,"(93) and thus "does not create a minimum list of network elements to be unbundled under Section 251."(94) Those arguments misperceive the intended relationship between sections 251 and 271 and the common purpose they were meant to serve.

That common purpose, of course, was to open the ILECs' monopoly local exchange networks to competition.(95) Because section 251(c) and the competitive checklist were designed to further the same procompetitive ends, they contemplate similar obligations. Under the House bill, those requirements were coextensive. Section 242(a)(2) imposed upon local exchange carriers "[t]he duty to offer unbundled services, elements, features, functions, and capabilities whenever technically feasible, at just, reasonable, and nondiscriminatory prices and in accordance with" the Commission's implementing regulations.(96) Section 245(b)(2) specified that in order to gain authorization to provide in-region interLATA services, a BOC would have to certify that it "provides unbundled services, elements, features, functions, and capabilities in accordance with" section 242(a)(2) and the Commission's regulations.(97) Indeed, not only were the unbundling and checklist obligations the same, because the House bill contained no provision comparable to current section 251(d)(2), those obligations were limited only by considerations of technical feasibility and by the requestor's willingness to pay the costs of the elements requested.(98)

Under the Senate bill, the unbundling obligations were, at least potentially, broader than the checklist requirements. In describing the latter requirements, the Committee report emphasized that:

[t]he Committee does not intend the competitive checklist to be a limitation on the interconnection requirements contained in section 251. Rather, the Committee intends the competitive checklist to set forth what must, at a minimum, be provided by a [BOC] . . . before the FCC may authorize the [BOC] to provide in region interLATA services.(99)

The principal sponsor of the Senate bill, Senator Pressler, described the relationship between the checklist and the general unbundling provision in similar terms:

The competitive checklist . . . is intended to be a current reflection of those things that a telecommunications carrier would need from a [BOC] in order to provide a service such as telephone exchange service or exchange access service in competition with the [BOC]. This competitive checklist can best be described as a snapshot of what is required for these competitive services now and in the reasonably foreseeable future. In other words, these provisions open up the local loop from a technological standpoint as [current section 253] opens up the local loop from a legal barrier to entry standpoint. Section 251's "minimum [interconnection and unbundling] requirements" permit regulatory flexibility and are not limited to a "snapshot" of today's technology or requirements.(100)

Plainly, the Senate contemplated that the Commission would have the authority under section 251 of the Senate bill to prescribe unbundling obligations for ILECs that exceed those that the competitive checklist mandated for the BOCs. If the Senate intended for the Commission to have that broader authority under section 251, it follows that the Senate must have meant for the Commission to have the lesser implied power to impose the checklist's unbundling requirements on all ILECs.

The language and structure of the House and Senate bills thus substantiate the view that the Commission has authority under section 251(c)(3), at a minimum, to require ILECs to give competitors unbundled access to any network elements listed in the bills' respective competitive checklists. In the absence of evidence to the contrary, one must assume that the House and Senate conferees incorporated that common understanding into the compromise bill that became the 1996 Act.

The BOCs find that evidence in the fact that the section 271 checklist contains both a cross-reference to the general unbundling requirements in section 251(c)(3) and the requirement that a BOC provide several specified network elements.(101) Why would Congress do that, they ask, if not to indicate that "a proper application of sections 251 and 252 might not yield the unbundling of all network elements that Congress thought necessary" under section 271?(102) The companies answer their own question, however, when they note Congress' understanding that a BOC could have applied for section 271 relief before the Commission issued its rules implementing the market-opening requirements of section 251(c).(103) To foreclose the possibility that BOCs could gain interLATA entry before fully opening their local markets, Congress likely intended the specific items listed in the checklist to serve as a minimum threshold for interLATA entry pending Commission action under section 251(c)(104)

Thus, the preferred reading of section 251 and 271 is that the Commission has authority, at a minimum, to designate the elements identified in the competitive checklist as UNEs under section 251(c)(3).(105) Further, Congress' conclusion that provision of "checklist UNEs" is essential to "open up the local loop [to competitive entry] from a technological standpoint" strongly suggests that those elements should also be designated under 251(c)(3) which, after all, is designed to serve the same market-opening purposes. The Commission must "consider" that as it applies section 251(c)(3) and section 252(d)(2) to determine what network elements should be made available nationally.

NTIA believes that the place to start in compiling a national UNE list is with the elements that are either specifically mentioned in the competitive checklist or are logically related to them. The seven items identified in the Local Competition Order satisfy that standard. Five of those elements -- loops, local switching, interoffice transmission facilities, signaling and call-related databases, and operator services and directory assistance -- are checklist items.(106) A sixth element -- the network interface device -- is properly considered part of the loop and should be provided on an unbundled basis whenever the loop itself must be unbundled.(107) Finally, even ILECs concede that CLECs must have unbundled access to ILEC operations support systems because those systems are the irreplaceable mechanism by which CLECs obtain the UNEs to which they are entitled.(108)

The Commission could reasonably require that those seven items must be made available immediately nationwide, without any need for subsequent proceedings, either at the Federal or State level, to confirm that those UNEs satisfy the "necessary" and "impair" test or the other requirements of the 1996 Act. In concluding that the listed items are necessary to open the local exchange network to competition, Congress arguably applied the statutory standards, determined that the items specified complied with those requirements, and therefore required their provision on an unbundled basis.(109) Alternatively, as the comments in the local competition rulemaking and this proceeding demonstrate, the Commission can readily conclude that, for the foreseeable future, nationwide provision of the seven UNEs identified in the Notice satisfies the general requirements of section 251(c)(3) and any reasonable construction of section 251(d)(2).(110)

B. A "Best Practices" Model for Additions to the National UNE List

Although the 1996 Act charges the Commission, at least in the first instance, with determining which network elements should be unbundled,(111) the statute also expressly preserves State commissions' authority to impose additional access requirements that are consistent with the Federal regime.(112) Although the specification of a minimum national set of UNEs has many benefits, it also has limitations. Most important is the risk that over time, the national minimums might become a ceiling, or a shield that ILECs can use to ward off additional unbundling obligations until the Commission moves to expand the national norms.(113)

For that reason, NTIA commends the Commission's decision to continue to permit State commissions to add network elements to the Commission's minimum national list.(114) State commissions ought to be allowed to specify additional UNEs, at a CLEC's request, if the CLEC can demonstrate that requiring unbundled access to that network element would satisfy the statutory requirements. If, however, (1) a State commission orders an ILEC to provide a particular UNE, or (2) an ILEC voluntarily agrees to provide it, the Commission should create a rebuttable presumption that such UNE should be made available nationwide. The burden would then be on the ILEC to show that the provision of that UNE to another CLEC or in another jurisdiction or geographical area would be inconsistent with the terms of the Act and the Commission's implementing regulations. NTIA believes that this "best practices" framework would bring the combined expertise of Federal and State regulators to bear on the question of which unbundling requirements can best promote the procompetitive goals of the 1996 Act. As importantly, it would create a dynamic process that would allow developments throughout the industry to drive unbundling policies forward.(115)
 

V. THE COMMISSION SHOULD ESTABLISH PROCEDURES AND STANDARDS FOR REMOVING UNBUNDLING OBLIGATIONS WHEN THEY BECOME UNNECESSARY.

Although Congress imposed broad-ranging unbundling obligations on ILECs, it did not require that those obligations be either immutable or perpetual. As the market-opening provisions of the 1996 Act succeed in stimulating more and more competition, the point may come when the costs of the unbundling (which are not insignificant) outweigh the incremental benefits. NTIA therefore believes that the Commission should establish procedures and standards for modifying the unbundling requirements under appropriate circumstances.

The Commission should not, however, "sunset" those obligations upon the mere passage of time.(116) Indeed, it lacks authority to do so. The text of the 1996 Act reveals that when Congress wished to impose an obligation only for a period of months and years, it knew how to draft the appropriate sunset language.(117) The absence of a sunset provision in section 251 can only mean that Congress did not want one.(118)

Section 10 of the Communications Act does give the Commission broad discretion to forbear from applying any provision of the Act if it determines that continued enforcement of that provision is not necessary to (1) ensure just, reasonable, and nondiscriminatory charges and practices, (2) protect consumers, and (3) promote the public interest.(119) The only specific limitation on the Commission's forbearance authority under section 10 appears in subsection (d), which provides that "the Commission may not forbear from applying the requirements of section 251(c) and 271 . . . until it determines that those requirements have been fully implemented."(120) The Notice solicits comments on the meaning of that provision and the extent to which it may constrain the Commission's ability to limit the section 251(c) unbundling requirements for ILECs.(121)

The text of section 10(d) does not reveal its meaning, and the associated legislative history simply paraphrases the text.(122) On the other hand, the statute does suggest what it does not mean. Section 10 cannot reasonably be read to permit forbearance from applying section 251(c) to follow automatically from a BOC's compliance with section 271 and its entry into the interLATA market.(123) Section 10(d) excuses Commission enforcement of sections 251(c) and 271 only if the Commission determines that "those requirements have been fully implemented." It does not say that implementation of one provision warrants nullification of the other.(124) Section 271, moreover, requires at most only modest local competition as a precondition for interLATA entry.(125) Consequently, the level of competition that would warrant grant of a BOC application under section 271 would not be sufficient, in most instances, to justify forbearance under section 10.(126)

Section 10(d), however, does not preclude the Commission from taking reasonable steps to loosen the ILECs' unbundling obligations under section 251(c) in appropriate circumstances. NTIA has argued, for example, that the Commission could relax unbundling requirements with respect to advanced data services such as DSL if it found that ILECs are giving competitors "timely and nondiscriminatory access to all of the network elements that they need to deploy competitive services."(127) NTIA recommends that the Commission explore further the scope of its forbearance authority, with a view towards identifying the conditions under which it would be appropriate to forbear from applying the unbundling requirements in section 251(c)(3).

An important aspect of that inquiry is how the Commission should exercise whatever forbearance authority it might possess. NTIA suggests that the Commission establish a forbearance process that will permit relaxation of section 251 unbundling requirements when market conditions warrant. One possible approach would be to allow greater flexibility in pricing particular UNEs, rather than attempt to determine which portions of the ILECs' networks should no longer be identified as UNE. As more and more UNEs become available from non-ILEC sources, market forces should exert downward pressures on the prices for those UNEs, thereby reducing the need for strict price regulation of UNEs provided by ILECs.(128) Appropriate price signals are essential if CLECs are to make efficient and socially beneficial choices among the entry choices made available to them by the 1996 Act. Pricing of telecommunications services is a complex process that may not produce rates that replicate the prices that would prevail in a competitive market. NTIA therefore recommends that, when circumstances justify forbearance, the Commission consider reducing the ILECs' unbundling responsibilities under the Act by relaxing the pricing standards applicable to UNEs.

As for the circumstances that could justify forbearance, the Commission should seek to craft standards that are clear, certain, and predictable. ILECs and CLECs alike must be able to determine what level of unbundling is required/available in particular markets so that they can rationally plan their businesses. In NTIA's view, the essential precondition for forbearance is the presence within the relevant market area of sufficient competition to ensure that loosening of the unbundling requirements will not harm competition or consumers. The comments in this proceeding have identified a number of factors that should be considered in determining whether adequate competition exists. The most important of those factors concerns supply conditions within the relevant market: Whether there are non-ILEC suppliers of UNEs in the market; Whether those suppliers have facilities in those parts of the market where CLECs seek to offer service; Whether alternative suppliers are willing and able to supply the UNEs that CLECs request and in sufficient quantities to enable competitors to deploy their desired services to their chosen customer base;(129) Whether the costs, quality, and provisioning intervals of those UNEs comparable to elements obtainable from the serving ILEC.

The Commission cannot reasonably determine the state of competition in the market by simply counting the number of competitors. In particular, the presence of a single competitive provider of a particular UNE cannot ipso facto justify relaxation of an ILEC's obligation to provide that UNE upon request, as most ILECs contend.(130) The operative principle cannot be: If one CLEC provides its own element somewhere within a market area, other CLECs must do so everywhere. That is not only antithetical to basic notions of competitive markets, but also is inconsistent with Congress' conclusion that UNEs are a necessary springboard for competitive entry because the costs of facilities-based entry are excessive for most new providers.(131)

On the other hand, if in serving a particular market segment or customer group (e.g., business subscribers), a significant number of CLECs (e.g., three or more in addition to the serving ILEC) are providing a certain network element on a facilities-basis within a market area, one may question whether society should continue to incur the costs involved in ensuring that those elements are also available from an ILEC. Linking forbearance to the presence of multiple self-providing CLECs will provide greater assurances that removal of the ILECs' unbundling obligations for specific UNEs will not occur without evidence that self-provisioning is a feasible option for a variety of CLECs, not simply the largest or best-capitalized. Requiring multiple CLECs may also increase the likelihood that a wholesale market for particular UNEs will arise before the ILECs' duty to provide them terminates.

Another important part of the foregoing competition analysis is the availability of reasonable and timely collocation opportunities for CLECs. CLECs' ability to acquire certain UNEs from non-LEC sources will not enable CLECs to provide competing telecommunications services unless they can connect those self-provided elements to the UNEs that they must obtain from the ILECs. Collocation -- whether physical or virtual -- is the congressionally designated mechanism by which CLECs gain access to ILEC network elements.(132) Consequently, the Commission should not grant any ILEC forbearance petition unless the ILEC demonstrates that it is in full compliance with its collocation obligations under the 1996 Act, the Commission's regulations, and any State commission requirements.

VI. CONCLUSION

For the foregoing reasons, NTIA respectfully requests that the Commission adopt the recommendations contained herein.

Respectfully submitted,

Larry Irving
Assistant Secretary for                                    Kathy Smith
 Communications & Information                     Acting Chief Counsel

Kelly Levy
Acting Associate Administrator                       Milton Brown
Alfred Lee                                                      Attorney
Tim Sloan
Office of Policy Analysis
and Development

National Telecommunications
and Information Administration
U.S. Department of Commerce
Room 4713
14th Street and Constitution Ave., N.W.
Washington, D.C. 20230
(202) 482-1816

August 2, 1999



ENDNOTES

1. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Second Further Notice of Proposed Rulemaking, CC Docket No. 96-98, FCC 96-182 (rel. Apr. 16, 1999) (hereinafter Notice). Unless otherwise indicated, all subsequent citations to "Comments" shall refer to pleadings filed on May 26, 1999 in CC Docket No. 96-98.

2. 2/ Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C. §§ 151 et seq. (1996 Act). For convenience and unless otherwise indicated, all subsequent citations to the 1996 Act will refer to the corresponding sections in the United States Code.

3. H.R. Conf. Rep. No. 104-458, at 113 (1996), reprinted in 1996 U.S.C.C.A.N. 124 (hereinafter Conference Report).

4. 141 Cong. Rec. H8464 (daily ed. Aug. 4, 1995) (statement of Rep. Fields). See also H.R. Rep. No. 104-204, at 81 (1995), reprinted in 1996 U.S.C.C.A.N. 10, 47 (hereinafter House Report) ("primary objective . . . of this legislation is to foster competition for local exchange and exchange access services").

5. See 47 U.S.C. § 251(a), (b), (c) (Supp. II 1996). See also AT&T Corp. v. Iowa Utils. Bd., 119 S.Ct. 721, 738 (1999) (1996 Act "can be read to grant . . . 'most promiscuous rights' . . . to competing carriers vis-a-vis [ILECs]").

6. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 FCC Rcd 15499, recon., 11 FCC Rcd 13042, second recon., 11 FCC Rcd 19738, third recon., 12 FCC Rcd 12460, aff'd in part and rev'd in part sub nom. Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), aff'd in part, rev'd in part, and remanded sub nom. AT&T Corp. v. Iowa Utils. Bd., 119 S.Ct. 721 (1999) (hereinafter Local Competition Order).

7. Section 252 of the 1996 Act contemplates that the obligations set forth in section 251 and the Commission's implementing regulations will be given concrete expression through agreements negotiated by the affected carriers, subject in many instances to arbitration by the appropriate State regulatory commission. See 47 U.S.C. § 252(a)-(b) (Supp. II 1996).

8. AT&T Corp. v. Iowa Utils. Bd., 119 S.Ct. 721 (1999).

9. Id. at 729-733.

10. 47 C.F.R. § 51.319 (1998).

11. AT&T Corp., 119 S.Ct. at 734-736.

12. Id. at 734. Although the Court's decision only vacates section 51.319, its criticism of the Commission's application of section 251(d)(2) necessarily calls into question the validity of section 51.317, 47 C.F.R. § 51.317 (1998), which establishes the standards by which State commissions, on a going forward basis, may designate UNEs beyond those specified in section 51.319. See Notice ¶ 14 n.21.

13. AT&T Corp., 119 S.Ct. at 735 (emphasis in original).

14. USTA claims, for example, that "the Commission cannot impose mandatory unbundling obligations on ILECs consistent with the Court's opinion" unless and until "the Commission conducts a comprehensive, nationwide review of competition on a market-by-market basis." Comments of the United States Telephone Association at 10 (USTA Comments).

15. See, e.g., Ameritech Comments at 17-27; Comments of GTE Service Corp. at 12-20 (GTE Comments); USTA Comments at 18-28.

16. Section 251(c)(3) requires ILECs to provide UNEs "to any requesting telecommunications carrier." 47 U.S.C. § 251(c)(3) (Supp. II 1996) (emphasis added). The legislative history, moreover, is replete with statements indicating that Congress sought to expand competition by maximizing entry opportunities by individual competitors. See, e.g., S. Rep. No. 104-23, at 5 (1995) (hereinafter Senate Report) (Senate bill requires ILECs "to open and unbundle network features and functions to allow any customer or carrier to interconnect with the carrier's facilities"); House Report at 48, 1996 U.S.C.C.A.N. at 11 (House bill "promotes competition in the market for local telephone service by requiring local telephone companies . . . to offer competitors access to parts of their networks"); 142 Cong. Rec. S700 (daily ed. Feb. 1, 1996) (statement of Sen. Burns) ("rules on interconnection will empower competitors by ensuring that they can gain access on fair and reasonable terms to existing local telephone facilities"); 141 Cong. Rec. H8464 (daily ed. Aug. 4, 1995) (statement of Rep. Fields) ("what we have attempted to do is to open [the local network] in a sensible and fair way to all competitors"); 141 Cong. Rec. H8282 (daily ed. Aug. 2, 1995) (statement of Rep. Bliley) (House bill requires ILECs "to open the local exchange network to competitors seeking to offer local telephone services"). The obvious conclusion is that Congress sought to foster entry by multiple firms and then let competitive market processes distinguish the "efficient" providers from the "inefficient" ones.

17. Application of Ameritech Michigan Pursuant to Section 271 of the Communications Act of 1934, as amended, To Provide In-Region, InterLATA Service in Michigan, Memorandum Opinion and Order, 12 FCC Rcd 20543, 20745-20746, ¶¶ 386-387 (1997).

18. Promotion of Competitive Networks in Local Telecommunications Markets, Notice of Proposed Rulemaking and Notice of Inquiry in WT Docket No. 99-217 and Third Further Notice of Proposed Rulemaking in CC Docket No. 96-98, WT Docket No. 99-217, CC Docket No. 96-98, FCC 99-141, ¶ 23 (rel July 7, 1999) (hereinafter Local Competition Rulemaking).

19. NTIA has expressed concern that the Commission's chosen methodology for fixing the price of interconnection and UNEs, and for determining the discount applicable to resold ILEC service -- Total Element Long Run Incremental Cost (TELRIC) -- if rigidly applied, may produce prices that do not accurately reflect the costs of providing the service or arrangement in question. See Reply Comments of the National Telecommunications and Information Administration in CC Docket No. 96-98 at 18-25 (filed May 30, 1996) (NTIA Reply Comments). If TELRIC-based pricing were to produce unreasonably low UNE rates, the aggressive unbundling framework that Congress enacted could induce artificially CLECs to enter the local market via UNEs, as opposed to, for example, facilities-based entry. It could also reduce incentives for ILECs and others to invest in advanced telecommunications facilities and networks.
 

The experience gained from State arbitrations conducted over the past three years suggests that, in practice, the TELRIC standard may be flexible enough to avoid these problems. See, e.g., US West Communication, Inc. v. Jennings, CV97-26-PHX-RGS-OMP, 1999 U.S. Dist. LEXIS 6821, at *7-*8 (D. Ariz. May 4, 1999) ("Because TELRIC focuses on a mythical network instead of [the ILEC's] existing network, each party was free to offer its own vision of this mythical network, limited only by the party's audacity and its ability to procure an expert witness willing to endorse that party's vision."). The Commission should continue to monitor the situation. See Local Competition Rulemaking ¶ 16. NTIA also recommends that the Commission give States sufficient flexibility in applying the national TELRIC methodology so that CLECs will continue to make efficient choices among the entry alternatives that the 1996 Act affords them. See, e.g., Southwestern Bell Telephone Company v. AT&T Communications off the Southwest, Inc., No. A 97-CA-132 SS, 1998 U.S. Dist. LEXIS 15637, at *38 (W. D. Tex. Aug. 31, 1998) (approving Texas Public Utility Commission's decision to adopt its variation of TELRIC "which takes into account [ILEC's] existing network routes, wire center locations, and 'Texas-specific data' such as 'the costs associated with construction and rights-of-way that [ILEC] actually incurs in the laying of its network.'").

20. The Commission has previously held that the unbundling and other market-opening provisions of the 1996 Act are not applicable only to voice or circuit-switched services. See Deployment of Wireline Services Offering Advanced Telecommunications Capability, Memorandum Opinion and Order, and Notice of Proposed Rulemaking, 13 FCC Rcd at 24032-24034, ¶¶ 40-44 (1998) (hereinafter First Section 706 Order). It should specifically reaffirm that determination here.

21. [T]he Commission shall forbear from applying any regulation or provision of this Act to a telecommunications carrier or telecommunications service, or class of telecommunications carrier or telecommunications service, in any or some of its of their geographic markets, if the Commission determines that --

(1) enforcement of such regulation or provision is not necessary to ensure that the charges' practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary for the protection of consumers; and

(3) forbearance from applying such provision or regulation is consistent with the public interest.
 

47 U.S.C. § 160(a) (Supp. II 1996).

22. See, e.g., Council of Economic Advisers, Progress Report: Growth and Competition in U.S. Telecommunications 1993-1998 8, 18 (Feb. 8, 1999).

23. Id. at 16, 18, 24.

24. Id. at 17-18.

25. Salomon Smith Barney, CLECs Surpass Bells in Net Business Line Additions for First Time (May 6, 1998).

26. The best evidence of congressional intent is the statutory text, viewed as a whole. Lexecon Inc. v. Milberg Weis Bershad Hynes & Lerach, 523 U.S. 26, 36 (1998) (central tenet of statutory construction is "that a statute is to be considered in all its parts when construing any one of them"); Freytag v. Commissioner, 501 U.S. 868, 873 (1991) (when a court "find[s] the terms of a statute unambiguous, judicial inquiry should be complete except in rare and exceptional circumstances"). When the language is ambiguous, as is the case here, it is necessary to consider the associated legislative history. Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust for So. Cal., 508 U.S. 602, 627 (1993); Toibb v. Radloff, 501 U.S. 157, 162 (1991). Furthermore, when the statute is ambiguous, a court may not substitute its construction of the text for a reasonable interpretation made by the agency charged with administering the statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984).

27. Id. at 734.

28. Id. at 753.

29. Notice ¶ 21.

30. Ameritech suggests that although the Supreme Court "may not have labeled its analysis an essential facilities," its opinion commands the Commission to employ such an analysis in defining UNEs. Ameritech Comments at 30. But the Court cannot read such a standard into the 1996 Act if Congress did not so require it. See Anderson v. Wilson, 289 U.S. 20, 27 (1933) (courts "do not pause to consider whether a statute differently conceived and framed would yield results more consonant with fairness and reason. We take the statute as we find it."); United States ex rel. Harlan v. Bacon, 21 F.3d 209, 211 (8th Cir. 1994) (quoting United States v. Cooper Corp., 312 U.S. 600, 605 (1941)) ("it is not [court's] function to engraft on a statute additions we think the legislature logically might or should have made").

31. Olympia Equip. Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 376 (7th Cir. 1986). Thus, the essential facilities analysis does not so much establish a separate antitrust offense as it provides evidence of unlawful monopolization or monopoly leveraging.

32. Laurel Sand & Gravel, Inc. v. CSX Transportation, Inc., 924 F.2d 539, 544 (4th Cir. 1991) (citing MCI Communications Corp. v. AT&T Co., 708 F.2d 1081, 1132-1133 (7th Cir.), cert. denied, 464 U.S. 891 (1983)).

33. City of Anaheim v. Southern California Edison Co., 955 F.2d 1373, 1380 n.5 (9th Cir. 1992) (quoting Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 544 (9th Cir. 1991)) (emphasis in original).

34. Hecht v. Pro-Football, Inc., 570 F.2d 982, 992 (D.C. Cir. 1977), cert. denied, 436 U.S. 956 (1978). Accord Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566, 569 (2d Cir. 1990).

35. See, e.g., Laurel Sand & Gravel, Inc., 924 F.2d at 544-545. In particular, the monopolist has no obligation to grant access at a price that guarantees the plaintiff a profit on the final product. Id. at 545.

36. See, e.g., Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186, 190 (2d Cir. 1992) (protecting image of corporation's products); City of Anaheim v. Southern California Edison Co., 955 F.2d at 1381 (ensuring lower prices for monopolist's customers); MCI Telecommunications Corp., 708 F.2d at 1133 (plaintiff's financial unsoundness); City of College Station v. City of Bryan, 932 F. Supp 877, 888 (S.D. Tex. 1996) (discouragement of "free riding").

37. See infra Section III.C.2.

38. See 47 U.S.C. § 252(d) (Supp. II 1996). The Supreme Court expressly upheld the Commission's authority to promulgate regulations to implement section 252(d). AT&T Corp., 119 S.Ct. at 729-733.

39. See 47 U.S.C. § 251(c)(3) (Supp. II 1996).

40. See, e.g., MCI Telecommunications Corp., 708 F.2d at 1132 (refusal to grant access to an essential facility "may be unlawful because a monopolist's control of an essential facility . . . can extend monopoly power from one stage of production to another, and from one market to another").

41. See AT&T Comments at 49-50 and authorities cited therein. Although the AT&T Consent Decree severely restricted the BOCs' ability to enter other markets, it left intact the local exchange monopolies whose continued existence necessitated those line of business restrictions. See United States v. AT&T, 552 F. Supp. 131, 186-191 (D.D.C. 1982).

42. See, e.g., House Report at 47-48, 1996 U.S.C.C.A.N. at 11 ("For decades, U.S. telecommunications policy has relied heavily on regulated monopolies to provide telecommunications services to business and consumers. . . . Technological advances would be more rapid and services would be more widely available and at lower prices if telecommunications markets were competitive rather than regulated monopolies."); 141 Cong. Rec. S8015 (daily ed. June 8, 1995) (statement of Sen. Pressler) ("if we had done what we are trying to do in this bill -- that is, to require [ILECs] to unbundle and interconnect, to allow for local competition, . . . the whole telephone communications industry might be more innovative today than it is").

43. House Report at 49, 1996 U.S.C.C.A.N. at 13. See also "Telecommunications Competition and Deregulation Act of 1995: A Pro-competitive, De-regulatory Policy Prescription," Executive Summary at 2 (Jan. 31, 1995) (Pressler Policy Paper) ("Local telephone service is predominantly a monopoly service. Although business customers in metropolitan areas may have alternative providers for exchange access service, consumers do not have a choice of local telephone service. Some states have begun to open local telephone markets to competition. We need a national policy framework to accelerate the process"); id. at 6 ("Interconnection to the local exchange bottleneck network is a fundamental requirement for a competitive market in local exchange and exchange access service."); 141 Cong. Rec. S8197 (daily ed. June 12, 1995) (statement of Sen. Pressler) ("Interconnection and unbundling will put new competitors . . . on the same footing with former monopolies."); 141 Cong. Rec. S7906 (daily ed. June 7, 1995) (statement of Sen. Lott) ("It is critical to recognize the reason why all of these barriers, restrictions, and regulations exist in the first place -- the so-called bottleneck. Opening the local network removes the bottleneck and ensures that all competitors will have equal and universal access to all consumers").
 

ILECs cite the passage quoted in the text as evidence that Congress "had the essential facilities doctrine in mind when it adopted the unbundling requirement." Ameritech Comments at 31. See also GTE Comments at 15. The text does not even suggest, however, that the House Committee was using the phrase "essential facilities" in its technical sense. Further, the ILECs do not account for the fact that the second sentence of the quoted passage (which the ILECs do not cite) seems to contemplate the unbundling of elements (e.g., switching and signalling) that the ILECs now claim, based upon an essential facilities analysis, do not need to be unbundled in many instances. Finally, Congress' finding in 1995 that the ILECs' networks are essential facilities to which competitors must have access cannot be squared with the ILECs' contention that the decision to unbundle a particular UNE must turn on some future determination of "essentiality."

44. Mr. Justice Breyer speculated that the 1996 Act's generalized specification of the ILECs' unbundling obligations "reflect[s] congressional uncertainty about the extent to which compelled use of an [ILEC's] facilities will prove necessary to avoid waste." AT&T Corp., 119 S.Ct. at 753. More likely, Congress opted for general language to give the Commission some latitude to identify new UNEs as the ILECs' networks and competitors' needs change. See, e.g., 141 Cong. Rec. S8468 (daily ed. June 15, 1995) (statement of Sen. Pressler) ("[C]ompetitive checklist [in section 271(c)(2)(B)] could best be described as a snapshot of what is required for these competitive [local exchange] services now and in the reasonably foreseeable future . . . [s]ection 251's 'minimum standards' permit regulatory flexibility and are not limited to a 'snapshot' of today's technology or requirements").
 

Justice Breyer correctly identified the costs of unlimited unbundling:
 

Rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation. . . . A totally unbundled world -- a world in which competitors share every part of an incumbent's existing system, including, say, billing, advertising, sales staff, and work force (and in which regulators set all unbundling charges) -- is a world in which competitors would have little, if anything, to compete about.
 

AT&T Corp., 119 S.Ct. at 754. But the 1996 Act does not create such a world. It mandates unbundling only of network elements -- defined as facilities and equipment and their associated functions and capabilities. See 47 U.S.C. § 153(29) (Supp. II 1996). In the main, therefore, the Act requires only "the sharing of readily separable and administrable physical facilities." AT&T Corp., 119 S.Ct. at 753. While the Act arguably does compel the sharing of personnel in some instances (e.g., operators, technicians involved in provisioning, repairing, and maintaining UNEs), that sharing occurs only when an ILEC is obliged to furnish some facility or equipment as a UNE. The Act does not authorize widescale sharing of ILEC personnel, advertising, research facilities, or firm management.
 

Finally, Justice Breyer was right to note that unbundling "does not automatically mean increased competition. It is in the unshared, not in the shared, portions of the enterprise that meaningful competition would likely emerge." Id. at 754. It is nevertheless true that even a fairly broad unbundling requirement can give competitors room to innovate, for example, in the services that they can create using those elements, or in the way that they price, package, and market the services they create. See, e.g., Comments of Qwest Communications Corp. at 12.

45. Senate Report at 20 ("The negotiation process . . . is intended to resolve questions of economic reasonableness with respect to interconnection requirements.").

46. House Report at 71, 1996 U.S.C.C.A.N. at 37. See also 47 U.S.C. § 251(d) (Supp. II 1996). Congress' reliance on pricing rules to help ensure the reasonableness of competitors' unbundling requests underscore the need for the Commission to make sure that its rules are "right." See supra note 19.

47. See, e.g., House Report at 74, 1996 U.S.C.C.A.N. at 39 ("saddling the full weight of all of these [interconnection, unbundling, and resale] requirements immediately on new entrants will discourage persons from entering the market"); id. at 208, 1996 U.S.C.C.A.N. at 101 (additional views of Reps. Dingell, Tauzin, Boucher, and Stupak) (stating that House bill "imposes new and burdensome regulatory requirements" on the BOCs).

48. Although the section 251(c) obligations apply to all ILECs, rural telephone companies are exempted from them under certain conditions and small carriers may petition State commissions for suspension or modification of those requirements under certain conditions. 47 U.S.C. § 251(c), (f) (Supp. II 1996).

49. Id. § 251(c)(3).

50. AT&T Corp., 119 S.Ct. at 736.

51. 47 U.S.C. § 251(d)(2) (Supp. II 1996).

52. Comments of Sprint Corporation at 11-12 (Sprint Comments).

53. AT&T Corp., 119 S.Ct. at 725.

54. Id.

55. Id. (emphasis in original).

56. See BellSouth's Comments at 11.

57. AT&T Corp., 119 S.Ct. at 735. See also id. at 735 n.11 (firm's ability to provide service has not been impaired "when the business receives a handsome profit but is denied an even handsomer one"). Several ILECs cite with approval the Court's discussion of ladders and light bulbs, but mischaracterize the Court's conclusion. See Ameritech Comments at 13 ("If entrants could change the bulb using their own (or someone else's) ladder, even if they had to stretch their arms to full extension, . . . failure to obtain access to [the ILEC's] ladder would not 'impair' the entrants' ability to offer the services they seek to provide."); BellSouth's Comments at 11 ("The Court's analogy was that as long as the light bulb could still be changed, the incumbent's longer ladder was neither necessary nor would its absence impair the CLEC."). What the court actually said was: "the proper analogy . . . [is] the presence of a ladder tall enough to enable one to do the job, but not without stretching one's arm to its full extension. A ladder one-half inch taller is not . . . 'necessary,' nor does its absence 'impair' one's ability to do the job." Thus, the Court simply concluded that a one-half inch difference was of no more significance than a one percent decrease in profits. The Court did not even intimate that larger differences in length (or reductions in profits) would likewise be of no consequence.

58. The profit reduction cannot, of course, exceed 100 percent.

59. AT&T Corp., 119 S.Ct. at 735.

60. AT&T Comments at 6-10. See AT&T Corp., 119 S.Ct. at 735 n.11.

61. Put another way, although section 251(d)(2) "requires the Commission to apply some limiting standard," AT&T Corp., 119 S.Ct. at 734 (emphasis in original), the standard need not be too limiting. The Court held only that the Commission cannot compel the ILECs to comply with every CLEC request for network elements. It did not bar the Commission from requiring an ILEC to satisfy most of them.

62. See, e.g., Walters v. Metropolitan Educ. Enter., Inc., 519 U.S. 202, 207 (1997); Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 476 (1994).

63. AT&T Corp., 119 S.Ct. at 734 (limiting standard that Commission adopts pursuant to section 251(d)(2) must be "rationally related to the goals of the Act").

64. See supra Section III.A. See also Ameritech Comments at 38-39; GTE Comments at 11-12. The Commission has already developed a definition of "proprietary" that has not been challenged. NTIA therefore believes that it would be reasonable for the Commission to retain that interpretation and focus its attentions on crafting appropriate definitions of "necessary" and "impair."

65. See, e.g., Local Competition Order, 11 FCC Rcd at 15641-15642, ¶ 282 (network elements are essential if "without such elements, [CLECs'] ability to compete would be significantly impaired or thwarted"); Comments of SBC Communications Inc. at 14 ("the 'necessary' standard itself is not fundamentally different, . . . from the 'impair' inquiry") (SBC Comments). Conversely, the Commission should rebuff efforts to make necessity or essentiality a part of the "impair" test. See GTE Comments at 3-4 (inability to obtain a desired UNE "impairs" a CLEC "only where the element is essential to competition and there is convincing evidence that CLECs cannot effectively compete using substitutes for the element available from alternative sources").

66. See Bailey v. United States, 516 U.S. 137, 145 (1995) (quoting Platt v. Union Pac. R.R. Co., 99 U.S. 48, 58 (1879) ("a legislature is presumed to have used no superfluous words").

67. 47 U.S.C. § 251(c)(3) (Supp. II 1996).

68. See BellSouth's Comments at 18-21; GTE Comments at 25-27; USTA Comments at 29.

69. See Ameritech Comments at 37 (strict reading of proprietary could deny CLEC access to a UNE "even if a reasonably efficient competitor could not, as a practical matter, compete without a particular proprietary element").

70. See 141 Cong. Rec. S8072 (daily ed. June 9, 1995) (statement of Sen. Pressler) (noting that the government's initial antitrust complaint against AT&T alleged, among other things, that the company had obstructed "competitive equipment providers through the maintenance of proprietary standards"). To NTIA's knowledge, Senator Pressler's comments provide the only public congressional rationale for section 251(d)(2). As the principal sponsor of the bill of which that provision was a part, the Senator's remarks provide evidence as to the meaning and purpose of that provision.

71. See, e.g., The Oxford English Dictionary vol. X, at 276 (2d ed. 1989) ("Indispensable, requisite, essential, needful; that cannot be done without"); The Random House Dictionary of the English Language 1284 (2d ed. 1987) ("being essential, indispensable, or requisite"); Webster's New Universal Unabridged Dictionary 1200 (2d ed. 1983) ("that which cannot be dispensed with; essential; indispensable"); The American Heritage Dictionary 834 (2d College ed. 1982) ("1. Absolutely essential; indispensable. 2. Needed to achieve a certain result or effect; requisite.").

72. See US West Comments at 23.

73. The American Heritage Dictionary 644 (2d College ed. 1982). See also Black's Law Dictionary 752 (6th ed. 1990) ("To weaken, to make worse, to lessen in power, diminish, or relax, or otherwise affect in an injurious manner"); The Oxford English Dictionary Vol. VII, at 696 (2d ed. 1989) ("To make worse, less valuable, or weaker; to lessen injuriously; to damage; injure"); The Random House Dictionary of the English Language 958 (2d ed. 1987) ("to make or cause to become worse; diminish in ability, value, excellence, etc.; weaken or damage"); Webster's New Universal Unabridged Dictionary 910 (2d ed. 1983) ("to make worse, less weaker, etc.; to deteriorate; to diminish in quality, value, or excellence; to lessen in power; to weaken; to enfeeble").

74. BellSouth's Comments at 9. Ameritech demonstrates that if one searches long enough, it is possible to find a definition of any word that better suits one's interests -- in this case, to argue that "impair" requires a material diminution. Ameritech Comments at 33 (citing Webster's Ninth New Collegiate Dictionary). A less result-oriented exploration reveals that materiality is not generally considered to be a necessary condition for impairment.
 

Ameritech also tries to make something of the fact that the only Justice who supported the Commission's interpretation of impair, Mr. Justice Souter, conceded that the Commission construed the term in its "weak" sense. Ameritech Comments at 33 n.83. But, as noted above, the Court majority objected to the Commission's "weak" reading only insofar as it was used to find that any increase in cost or reduction in quality constitutes an impairment.

75. The 100 percent cost penalty alluded to in the Notice is well beyond any reasonable impairment standard, even for proprietary elements. Notice ¶ 26 ("[i]f the cost of obtaining a network element from the incumbent LEC is half the cost of obtaining it from another source, should the incumbent be required to unbundle it?").

76. Because the statute does not specify separate impair standards for proprietary and nonproprietary elements, the ordinary assumption is that Congress intended the same test to apply to both categories of UNEs. Cf. National Credit Union Administration v. First National Bank & Trust Co., 522 U.S. 479, 501 (1998) ("similar language contained within the same section of a statute must be accorded a consistent meaning"). The Commission could reasonably "consider," however, that society's interest in preserving and promoting innovation warrants a different, and stiffer, impair standard for proprietary elements. See 47 U.S.C. § 251(d)(2).

77. See supra note 16 and accompanying text.

78. See, e.g., Conference Report at 148, 1996 U.S.C.C.A.N. at 160 (Congress "recognizes that it is unlikely that competitors will have a fully redundant network in place when they initially offer local service, because the investment necessary is so significant").

79. Pressler Policy Paper, supra note 43, at 12.

80. AT&T Corp., 119 S.Ct. at 738; Iowa Utils. Bd., 120 F.3d at 811.

81. See, e.g., Ameritech Comments at 33-34. See also AT&T Corp., 119 S.Ct. at 735 (firm that suffers small loss in profits "has perhaps been 'impaired' in its ability to amass earnings, but has not ipso facto been 'impair[ed] . . . in its ability to offer the services it seeks to offer'").

82. The American Heritage Dictionary 67 (2d Coll. ed. 1982).

83. The Court's discussion of ladders and light bulbs does not address this essential point (and, of course, overlooks the fact that ladders are more readily available than network elements). A CLEC that requests a "ladder" from an ILEC is not trying to replace a single light bulb. It is in the business of changing light bulbs. As such, it will need to change many light bulbs at many different job sites. It competes, moreover, against an ILEC whose ladders enable its workers to do their jobs with maximum ease and comfort. If the CLEC's inability to use the ILEC's ladders relegates it to using ladders that are shorter, heavier, less sturdy, the CLEC's workers will likely be slower, less productive, and more accident-prone than their ILEC counterparts. Over time, those differences will surely impair the CLEC's ability to compete in the bulb changing business.

84. Put another way, the Commission should accept the Supreme Court's implicit invitation to select an impairment standard rather close to the one that the Court overturned.

85. See Letter from Larry Irving, NTIA, to Chairman William Kennard, CC Docket No. 98-147, at 12-13 (July 17, 1998) (NTIA July 17 Letter).

86. Notice ¶ 14.

87. 47 U.S.C. § 251(d)(2) (Supp. II 1996). See also AT&T Corp., 119 S.Ct. at 736 (section 251(d)(2) "requires the Commission to determine on a rational basis which network elements must be made available") (emphasis in original).

88. Local Competition Order, 11 FCC Rcd at 15624-15627, ¶¶ 241-248. See also Notice ¶ 13.

89. AT&T Corp., 119 S.Ct. at 735.

90. 47 U.S.C. § 251(d)(2) (Supp. II 1996).

91. Notice ¶ 29 (quoting Time Warner Entertainment Co. v. FCC, 56 F.3d 151, 175 (D.C. Cir. 1995).

92. Conference Report at 116, 1996 U.S.C.C.A.N. at 127. See also id. at 148, 1996 U.S.C.C.A.N. at 160 (noting that central office switching "will likely need to be obtained from the [ILEC] as network elements pursuant to new section 251"). Virtually all parties appear to agree that loops must be unbundled under most circumstances. See, e.g., Local Competition Order, 11 FCC Rcd at 15684, ¶ 368; Ameritech Comments at 100; Bell Atlantic Comments at 38-39; SBC Comments at 23; Illinois Commerce Commission Comments at 11; Iowa Utilities Board Comments at 6-7.

93. US West Comments at 20. See also Ameritech Comments at 51; Bell Atlantic Comments at 19. These BOCs thus concede that they must provide or be prepared to provide each and every checklist item in order to qualify for interLATA entry. It also merits notice that a BOC's obligation to provide checklist items is not limited by the standards in section 251(d)(2), whatever they might be.

94. Bell Atlantic Comments at 19. See also Ameritech Comments at 50-53; US West Comments at 19-21.

95. See, e.g., Senate Report at 5 (Senate bill requires ILECs "to open and unbundle network features and functions to allow any customer or carrier to interconnect with the [ILEC's] facilities"); House Report at 48, 1996 U.S.C.C.A.N. at 11 (House bill "promotes competition in the market for local telephone service by requiring [ILECs] to offer competitors access to parts of their networks"); id. at 81, 1996 U.S.C.C.A.N. at 47 ("primary objective of Title I [of the House bill, which included both the unbundling requirement and the competitive checklist] is to foster competition for local exchange and exchange access service"); 141 Cong. Rec. H8464 (daily ed. Aug. of Rep. 4, 1995) (statement of Rep. Fields) ("[w]hat we have attempted to do is open [the local network] in a sensible and fair way to all competitors. Consequently, we created a checklist on how that loop is opened."); id. at H8284 (daily ed. Aug. 2, 1995) (statement of Rep. Hastert) (House bill "provides the formula for removing the monopoly powers of local telephone exchange providers to allow real competition in the local loop"); id. at S7887 (daily ed. June 7, 1995) (statement of Sen. Pressler) (Senate bill requires ILECs "to open and unbundle their local networks, to increase the likelihood that competition will develop for local telephone service").

96. H.R. 1555, 104th Cong., 1st Sess., § 101(a) (1995), reprinted in 141 Cong. Rec. H9979 (daily ed. Oct. 12, 1995) (adding new section 242(a)(2) to the Communications Act).

97. Id. §101(a), 141 Cong. Rec. at H9981 (adding new section 245(b)(2) to the Communications Act).

98. See id. § 101(a), 141 Cong. Rec. at H9981 (adding new section 242(b)(4)(D) to the Communications Act).

99. Senate Report at 43.

100. 141 Cong. Rec. S8469 (daily ed. June 15, 1995).

101. See 47 U.S.C. § 271(c)(2)(B)(ii), (iv)-(vii), (x) (Supp. II 1996).

102. US West Comments at 20 (emphasis in original). See Ameritech Comments at 51.

103. See Ameritech Comments at 51; SBC Comments at 9.

104. The BOCs also argue that if Congress had wanted to create a minimum list of UNEs, it would have done so in section 251(c)(3), which applies to all ILECs, rather than section 271, which pertains only to the BOCs. See, e.g., Ameritech Comments at 50-51; Bell Atlantic Comments at 19. On the other hand, because the checklist was meant to specify the minimum standards that a certain group of firms -- the BOCs -- must comply with in order to gain a particular form of regulatory relief -- freedom to offer interLATA services -- it makes sense to include that specification in the provision of the 1996 Act that governs the granting of such relief to those carriers -- section 271. That would be true even if the checklist requirements were intended to have more general applicability. Congress also may have opted for a general statement of the ILECs' unbundling obligations in section 251(c)(3) out of concern that a listing of particular UNEs, even coupled with more general unbundling language, could create an inference that the Commission had only limited authority to designate others. Cf. United States v. Espy, 145 F.3d 1369, 1371 (D.C. Cir. 1998) ("Where a general term follows a list of specific terms, the rule of ejusdem generis limits the general term as referring only to items of the same category.").

105. NTIA believes that the Commission's authority to designate particular UNEs also gives it considerable latitude in defining the scope of the ILECs' unbundling obligations with respect to that network element. Thus, for example, the Commission's power to identify loops as UNEs carries with it the authority to indicate which loops must be provided and how. See, e.g., First Section 706 Order, 13 FCC Rcd at 24036-24038, 24079-24080, ¶¶ 52-56, 152-153.

106. 47 U.S.C. § 271(c)(2)(B)(iv)-(vii), (x) (Supp. II 1996).

107. See US West Comments at iii.

108. See, e.g., GTE Comments at 71; SBC Comments at 56. See also Comments of the Iowa Utilities Board at 7 (Iowa Comments).

109. See Comments of Qwest Communications Corp. at 56-57 (Qwest Comments).

110. See, e.g., Comments of AT&T Corp. at 59-136; Comments of the Competitive Telecommunications Ass'n at 30-47; Comments of the Illinois Commerce Commission at 11-14 (Illinois Comments); Iowa Comments at 6-9; Comments of MCI WorldCom, Inc. at 37-84; Qwest Comments at 56-88.
 

If the Commission is reluctant to mandate nationwide availability of the seven UNEs, it should at least create a presumption that all ILECs must offer those elements everywhere upon request. See Comments of the New York Department of Public Service at 2. ILECs would then have an opportunity in specific arbitrations to demonstrate by clear and convincing evidence that an item on the presumptive national list should not be made available to a requesting CLEC because such provisioning would not meet the requirements of sections 251(c)(3) and (d)(2), as construed herein.

111. 47 U.S.C. § 251(d)(2) (Supp. II 1996).

112. Id. § 251(d)(3).

113. See NTIA Reply Comments at 9. See also NTIA July 17 Letter at 14 (suggesting that this problem has arisen as a result of the Commission's collocation policies).

114. Notice ¶ 14. On the other hand, if the Commission has mandated that one or more UNEs be provided nationwide, as NTIA believes that it should, the Commission should not permit State commissions to remove items from that list. Id. ¶ 38. The statute would seem to bar State commission from doing so on their own initiative. Section 251(d)(3) authorizes State commission to prescribe additional unbundling obligations on ILECs only if those requirements (1) are consistent with section 251 and (2) and "do[] not substantially prevent implementation" of section 251 and its underlying purposes. 47 U.S.C. § 251(d)(3)(B), (C) (Supp. II 1996). In order for the Commission to designate a UNE for provisioning nationwide, it must determine that such action is consistent with the statute and its goals. The plain language of section 251(d)(3) would thus bar State rulings to the contrary. Further, even assuming the Commission has authority to delegate to the States its power to remove UNEs from the national list, there are sound policy reasons why it should not exercise that authority. See Illinois Comments at 3-4.

115. The Commission should reinforce the process by revisiting its national minimum requirements periodically.

116. See Notice ¶ 39. See also GTE Comments at 91-94 (requirements should sunset in two years); USTA Comments at 17 (same).

117. See, e.g., 47 U.S.C. §§ 272(f), 273(d)(6), 274(g)(2) (Supp. II 1996).

118. See, e.g., Russello v. United States, 464 U.S. 16, 23 (1983) ("Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.").

119. 47 U.S.C. § 160(a) (Supp. II 1996).

120. Id. §160(d).

121. Notice ¶ 40. Section 10(d) was also the subject of considerable debate in the Commission's recent section 706 proceeding. See First Section 706 Order, 13 FCC Rcd at 24044-24048, ¶¶ 69-79.

122. See Conference Report, at 185, 1996 U.S.C.C.A.N. at 198; Senate Report, at 50.

123. See Notice ¶ 37. Conversely, a Commission decision pursuant to section 10 to refrain from applying a section 251(c) requirement cannot reduce a BOC's obligation to comply fully with section 271 in order to gain interLATA entry. See, e.g., 47 U.S.C. § 271(d)(4) (Supp. II 1996) ("Commission may not, by rule or otherwise, limit or extend" the section 271 competitive checklist) (emphasis added). See also Letter from Larry Irving, NTIA, to Chairman William Kennard, CC Docket No. 98-147, at 6 n.26 (Jan. 11, 1999) (NTIA January 11 Letter).

124. This conclusion is consistent with Congress' understanding that while section 271 sets the minimum prerequisites for BOC provision of in-region interLATA services, section 251 establishes broader interconnection obligations that would continue even after interLATA entry. See notes 99-100 and accompanying text.

125. See, e.g., Office of Policy Analysis and Development, National Telecommunications and Information Administration, Section 271 of the Communications Act and the Promotion of Local Exchange Competition 35-38 (NTIA Staff Working Paper Jan. 1998).

126. Of course, if a BOC's interLATA application is granted, and includes the presence of robust competition in a portion of a State, grant of that application could provide the Commission with a basis for forbearing from enforcing section 251(c)(3) obligations in that same part of the State.

127. NTIA January 11 Letter at 6 (emphasis in original). See also NTIA July 17 Letter at 8-11.

128. It is also worth noting, in this regard, that the ILECs' objections to the Commission's unbundling rules appear to stem not from unbundling per se but rather from unbundling at TELRIC-mandated rates. See, e.g., Ameritech Comments at 24, 26; Bell Atlantic Comments at 10, 11, 13; SBC Comments at 5, 6. See also Iowa Utils. Bd., 120 F.3d at 816 (ILECs' arguments against Commission's unbundling rules "are generally based on the assumption that [those rules] would operate in conjunction with the Commission's proposed pricing rules"). It also may be no accident that Justice Breyer's criticisms of the Commission's unbundling regime immediately followed his expressed reservations about the pricing methodology selected. AT&T Corp., 119 S.Ct. at 752-754 (Breyer, J., concurring in part and dissenting in part).

129. The Commission should bear in mind that some competitors may choose not to make their facilities available to other competitors to forestall the removal of unbundling obligations on the serving ILEC. Where such regulatory gamesmanship occurs, the Commission should not allow it to influence the Commission's forbearance analysis.

130. See, e.g., Bell Atlantic Comments at 14 ("fact that at least one competitor is using its own element to provide competing telecommunications service is sufficient proof that it can be done and that competitors do not need that element from incumbents"); USTA Comments at 33 ("[i]f at least one CLEC is supplying the element in question," ILECs should not be required to furnish it); US West Comments at 12 ("[e]vidence that one or more CLECs are obtaining an element in a geographic market from non-ILEC sources conclusively demonstrates that mandatory unbundling of that element is not appropriate in that market").

131. See, e.g., Conference Report, at 148, 1996 U.S.C.C.A.N. at 160 ("it is unlikely that competitors will have a fully redundant network in place when they initially offer local service, because the investment necessary is so significant"); House Report, at 49, 1996 U.S.C.C.A.N. at 13 ("inability of other service providers to gain access to the local telephone companies equipment inhibits competition that could otherwise develop in the local exchange market").

132. See 47 U.S.C. § 251(c)(6) (Supp. II 1996). Congress concluded that collocation was necessary to ensure reasonable and nondiscriminatory access to ILECs' networks because "the risk of discriminatory interconnection grows the farther one gets away from the [ILEC] central office." House Report, at 73, 1996 U.S.C.C.A.N. at 39. The statute plainly makes virtual collocation the preferred alternative when demonstrated space limitations prevent the ILEC from providing physical collocation.